How Does an IPO Work? A Simple Guide to Initial Public Offerings - And How You Can Make Money From One

Every year, dozens of companies in India and around the world decide to "go public" - offering their shares to ordinary investors for the first time. This process is called an Initial Public Offering, or IPO. It is one of the most talked-about events in personal finance, yet many investors apply for IPOs without fully understanding how the process works or how money is actually made. Here is the full picture, in plain language.

What Exactly Is an IPO?

An IPO is the first time a private company sells its shares to the general public through a stock exchange. Before an IPO, ownership in the company is held by the founders, early investors, and venture capitalists. After the IPO, anyone - including retail investors like you - can buy a stake in the company by purchasing shares on the BSE or NSE (in India) or Nasdaq/NYSE (in the US).

Fresh Issue: The company creates new shares and raises fresh capital for growth, debt repayment, or expansion. Jio's IPO is structured entirely as a fresh issue - all money raised goes into the business.

Offer for Sale (OFS): Existing investors - founders, PE funds - sell their shares to the public. The company itself receives nothing; only the sellers benefit.

Mixed Issue: A combination of both. Most large Indian IPOs - like Hyundai India - include both components.

How to Apply for an IPO in India - Quick Checklist

Open a Demat + Trading Account with any SEBI-registered broker (Zerodha, Groww, Angel One, HDFC Securities, etc.)

Link your bank account for ASBA (Application Supported by Blocked Amount) - your money stays in your account until allotment

Apply via UPI or net banking - UPI mandate is the fastest route for retail investors under ₹5 lakh

Apply for exactly one lot if the IPO is expected to be heavily oversubscribed - multiple lots do not improve your lottery odds

Check the Grey Market Premium (GMP) before applying - unofficial secondary market prices signal listing demand, though they are not guaranteed

Track your allotment status on the registrar's website (KFin Technologies or Link Intime) typically 6 days after subscription closes

Key Risk to Remember: Not every IPO delivers listing gains. Of the 75 mainboard IPOs in India in FY25, roughly 30% listed at or below their issue price. Applying on hype alone without reading the company's financials, debt levels, and promoter background is one of the most common - and costly - mistakes retail investors make.

The Bottom Line

An IPO is simply the moment a private company opens its doors to public investors. For early applicants who get allotment, listing gains can be significant - Bajaj Housing Finance returned 114% on Day 1. For long-term holders with patience and the right company, IPOs can be wealth-creating decisions over a decade. But they are not guaranteed returns, and the biggest IPOs are not always the best investments. In 2026, with Jio and SpaceX both heading to market, the temptation to chase the headline is real. The discipline to read the fine print is what separates investors from speculators.